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Google urges patience on Motorola, which continues to bleed cash

Google (NASDAQ:GOOG) executives praised the progress the company's Motorola division has made in transforming its business, but preached patience when thinking about its operations and place inside Google.

"While it's still early days, [Motorola CEO] Dennis [Woodside] and the team have already transformed Motorola's product quality," Google CEO Larry Page said during the company's third-quarter earnings conference call. "Now they're working to build out marketing and distribution."

CFO Patrick Pichette reiterated that position when questioned about Motorola's continuing losses. He said that that Google does not look at Motorola's performance in terms of one or two quarters but has a broader, long-term and more optimistic outlook for the unit.

Motorola reported an operating loss of $248 million, or -21 percent of revenue, during the quarter. The loss was wider than the operating loss of $192 million, or -11 percent of revenue, in the year-ago quarter.

Google said Motorola's revenue clocked in at $1.18 billion for the quarter, or 8 percent of consolidated revenues, down from $1.78 billion, or 13 percent of consolidated revenues in the year-ago period. Starting this quarter Google said its revenue and Motorola segment revenues are being impacted "by intersegment transactions" that are eliminated in Google's consolidated results. That was because Google and Motorola purchased and sold services to each other, Pichette said. Google also said "revenues associated with certain products," which it did not name, were recognized this quarter in Motorola's results, but deferred to future periods in Google's consolidated financial statements. Such intersegment revenues and deferred revenues were only $63 million in the third quarter.

Overall, Google reported net revenue of $11.92 billion in the third-quarter and earnings per share of $10.74. According to AllThingsD, analysts had expected net revenue of $11.9 billion and earnings per share of $10.35.

The quarter represents the initial sales of Motorola's Moto X smartphone, the phone maker's flagship device and the first to be created under parent Google's direction. Verizon Wireless, AT&T Mobility (NYSE:T), Sprint (NYSE:S), T-Mobile US (NYSE:TMUS) and U.S. Cellular (NYSE:USM) have been selling the Moto X since it launched in August--but those sales have so far not lifted Motorola's results.

The Moto X makes use of a variety of sensors to set itself apart. One of the key features of the phone is Touchless Control, an always-on voice recognition system that quickly learns a user's voice and only responds to them. When a user says "OK Google Now," users can launch the Android app Google Now to check the weather, traffic or other information simply by using their voice. The phone's super-low-power natural language processing core is constantly listening, which saves battery life on the phone. Active Display is a feature that automatically displays important information on the screen so that users don't have to constantly wake the phone up to look at the time or see messages.

Motorola also lets users customize the Moto X in thousands of different permutations via an online studio called Moto Maker, especially via different cases. So far that feature has only been available to AT&T customers, but customers at other carriers will soon be able to access it as well. Google is assembling the Moto X at a factory in Ft. Worth, Texas, which is operated by Flextronics. The company said in September the factory is churning out 100,000 phones per week, though not all of those are necessarily being bought by end customers.